Question

Suppose an economy produces two goods, food and machines. This economy always operates on its production possibilities frontier. Last year, it produced 50 units of food and 30 machines. This year it experienced a technological advance in its machine-making industry. As a result, this year the society wants to produce 55 units of food and 30 machines. Which of the following statements is true? a Because the technological advance occurred in the machine-making industry, it will not be possible to increase food production without reducing machine production below 30. b In order to increase food production in these circumstances without reducing machine production, the economy must reduce inefficiencies. c Because the technological advance occurred in the machine-making industry, increases in output can only occur in the machine industry. d The technological advance reduced the amount of resources needed to produce 30 machines. These resources could be used to produce more food.

Answer 1

The correct statement is that the technological advance in the machine-making industry reduced the resources needed to produce the same amount of machines, allowing the freed-up resources to be used for increased food production, thus benefiting the overall economy.

Step-by-step explanation:

The economy in question operated on its production possibilities frontier (PPF) last year, producing 50 units of food and 30 machines. This year, with the technological advance in the machine-making industry, the correct statement is: The technological advance reduced the amount of resources needed to produce 30 machines. These resources could be used to produce more food. This scenario is an illustration of how technological progress in one sector can indirectly benefit other sectors by freeing up resources. It's akin to the economy experiencing growth, where the PPF shifts outward, resulting in the potential for increased production capacity not just in the industry with the technological advance, but economy-wide, as long as the society chooses to utilize the freed-up resources efficiently.

Answer 2

The correct answer is option d.

Step-by-step explanation:

Suppose an economy always produces on its production possibilities frontier.

Last year it was producing 50 units of food and 30 machines.

This year the economy experiences a technological advancement in the machine-building industry.

The society this year wants to produce 55 units of food and 30 machines.

Technological advancement implies that more output can be produced using the same level of resources or same level of output require fewer resources.

Since society wants to produce the same level of machines it will need fewer resources to do so. The excessive resources left can be used to produce 55 units of food.